Food inflation adding to global poverty

Sharp increases in the price of staple foods over the past six months have pushed as many as 44 million people into poverty, according to a new Food Price Watch report from the World Bank.

The World Bank’s food price index rose by 15 percent between October 2010 and January 2011, according to the report, and now is 29 percent higher than one year earlier. The current index is just 3 below the peak in June 2008. The report notes that the increase over the last quarter is largely due to increases in the price of sugar, fats and oils, wheat and corn. The report also notes, however, that higher prices for these staple foods carry over to affect other foods, including animal-based proteins, in some developing countries.

Wheat prices have led the trend in recent months as adverse weather in key production areas such as Australia and China have raised supply concerns.

Corn prices meanwhile, have increased by about 73 percent since June 2010 due to lower crop forecasts, low stocks-to-use estimates, and demand for corn used in ethanol production. Sugar-based ethanol has become less competitive at current sugar prices, and the USDA estimates show the share of ethanol used for fuel in the United States rising from 31 percent 2008-2009 to a projected 40 percent in 2010-2011.

Rice production has remained relatively stable, and global rice prices are about 70 percent below the peak during the 2008 food crisis. The report notes that more favorable rice supplies and prices have helped limit the impact of the current round of food inflation in many developing countries where rice is a key staple food. Another positive factor has been a good local harvest of domestic crops including corn, sorghum, millet and cassava in many African countries, reducing the impact of higher prices for imported foods.

High food prices are, of course, good for food producers but hard on consumers. The report’s estimate of 44 million people driven to poverty reflects this, noting that a total of 68 million fell below the poverty line, but another 24 million food producers escaped extreme poverty as higher priced improved their incomes.